Thursday 20 Jun 2024
By
main news image

KUALA LUMPUR (Feb 3): The World Bank Group is urging policymakers to pivot Malaysia from a consumption-driven to an investment economy in order to raise wages.

World Bank’s lead economist for macroeconomics, trade and investment Dr Apurva Sanghi said on Friday (Feb 3) that Malaysia’s strong performance in 2022 was likely due to withdrawals from the Employees Provident Fund (EPF) which contributed to higher private consumption, but he argued that it may not be sustainable.

“More broadly, the issue is that growth is being propped by consumption rather than investment. There has been an overreliance on consumption over the last decade. Consumption [that] used to be about 40% of GDP in the late 90s, is now almost 60%,” said Apurva during the launch of the Malaysia Economic Monitor February 2023.

“One could say that Malaysia has become a consumption-driven economy before reaching the state of high value, high investment. Malaysia needs to pivot towards investment going forward.”

While private sector spending will remain the main driver of growth, private consumption is forecast to expand slower at 6.7% in 2023 against the 2022 estimate of 11.2%.

Meanwhile, the World Bank projected headline inflation for Malaysia to be moderate at 2.5%-3% in 2023, due to the easing of global supply constraints and the stabilisation of commodity prices, based on the assumption that retail fuel prices remain and price control measures on selected food items continue throughout the year.

Core inflation is expected to remain at around 3% in 2023.

While stating Malaysia’s need to move away from consumption-based economy, Apurva said the transition to an investment-based economy comes with higher wages.

“There is investment growth but it’s not as large a fraction of the overall economy as it should be,” he said.

“It is a structural issue for Malaysia, the fact that consumption has hovered around the 60% GDP mark for a number of years. The investment-to-GDP ratio has pretty much stayed flat for almost 10 to 20 years, so the solution is to get more investments to Malaysia.”

Malaysia’s higher capital spending in both private and public sectors contributed to further improvements in investment activity, as gross fixed capital formation increased by 13.1% in the third quarter of 2022, as compared to 5.8% in the second quarter of 2022, according to the monitor report.

Edited ByLee Weng Khuen
      Print
      Text Size
      Share